Selling your HVAC project

Are you not able to get your HVAC project started because of the perceived cost barriers. Read these proven ways to break through cost barriers.

By Peter Rumsey, P.E.

Jan 26, 2006

The goal in managing most manufacturing facilities is to maintain functional equilibrium with a minimum of downtime and productivity loss. Opportunities to make HVAC systems more efficient usually arise only when something breaks and needs to be replaced, when you put together your “wish list” for the annual budget game, or when top brass issues “the big directive” to begin implementing a global energy-reduction policy. While facilities managers know that energy efficiency is an increasingly important strategy in most manufacturing sectors, making the physical modifications required to implement efficiency measures can be challenging to say the least. There are valuable strategies in planning, assessing and communicating efficient HVAC projects that can help you break through the cost barrier that gatekeepers erect and increase your chances of getting your projects funded.

Typical funding scenariosEven if you’re proactive about saving energy at your facility, you know how difficult it can be to get new projects funded and implemented. Let’s look at some ways that projects usually get approved.

If it ain’t broke, don’t fix it: In this scenario, a malfunction or mechanical failure precipitates the actions required to replace an inefficient HVAC system or component. This can interrupt all or part of a facility’s production operations while repairs or replacements become the hot job du jour. It also involves increasing construction and installation costs to disproportionate levels -- the cost barrier here is easily broken because it's not the cost of replacing the components that's in question, (even though you may be paying a premium price for them). It's the cost of not doing so. You need to turn this scenario into a “fix it before it breaks” scenario.

Annual budgetary wish list: Because many plants were constructed on a first-cost basis, without a long-term view of energy costs, investment in ongoing maintenance or additional new construction also is evaluated on a first-cost or a simple payback basis. Budgeting for more efficient systems or components only happens annually and only for projects that exhibit an attractive payback, typically one or two years, and only “as long as it doesn’t cost too much.”

The directive: Top-down global directives from headquarters can be an effective way to implement energy-efficiency measures, and they may be sent down for a variety of reasons. Possibilities include global energy policies, cost reduction, reliability, environmental concerns, reduction in greenhouse gas emission, or for public relations reasons. While some managers, more typically in smaller companies, have access to upper management and can inform and influence the formation and execution of policies and directives, the directives also can be initiated under relatively arbitrary conditions.

A good example of this occurred when managers at a major U.S. high tech company were presenting a proposal for a cogeneration plant to the CEO. Fortunately, the CEO happened to have a television in his office that was tuned to CNN, which was broadcasting a map of the Eastern Seaboard during the blackouts of 2003. As the group stared at the screen, different states were going dark. The managers explained that a key benefit of having a cogen plant is reliability. The timing was perfect - the CEO approved the project on the spot.

Other corporate directives evolve for different reasons. The CEO of one of our client companies, a global semiconductor manufacturer, had been getting consistent pressure from his children to adopt more environmentally responsible corporate policies. Then, his VP for Health and Safety became inspired to do the same after reading Amory Lovins’ Factor Four -- Doubling Wealth, Halving Resource Use (Earthscan: London, England; 1998.) The combination of both these influences was enough to make a difference and compel the CEO to develop a comprehensive policy.

Work within your constraintsFacility managers typically work under considerable constraints, not the least of which is organizational inertia. Whatever your specific constraints happen to be, using a more sophisticated and long-term view to evaluate and present a project for approval will help erase the communications gap that exists between upper management and those in charge of plant-floor production.

In all of the above scenarios, there are ways to improve the chances of selling your project.

Speak in financial, not technical, terms: One of the difficulties plant professionals face is communicating costs and benefits of project proposals to the decision makers in financial terms. Most operations managers, who are driven by the need to implement projects quickly and keep plants productive and online, are accustomed to thinking of maintenance and upgrade investments only in terms of simple payback. They’re in a hurry to get a project approved and built, especially if it’s to replace a broken system or component that’s holding up production.

Financial decision makers, on the other hand, are much more likely to view an investment in terms of its long-term return on investment (ROI), not payback. They also look at risk. High risk in an investment must be offset by high potential rewards -- low rewards are justified by low risk. They’ll compare the potential investment in a new HVAC system with other competing investment opportunities, as well as with the company’s cost of borrowing money. If you can prove that the HVAC project ROI for the first five years is high, it will look like a much better corporate bet. Energy efficiency projects typically present low risk to financial managers. Seeing your project from this viewpoint can help to put it into a bigger perspective.

Use better financial analysis tools: Increasingly, more sophisticated methods of financial analysis are being used to assess the viability of HVAC system upgrades. Life-cycle financial analysis methods, such as internal rate of return (IRR) and net present value (NPV) often show a radically different picture of the benefits of energy efficient design proposals than typical first cost or simple payback calculations. Often it’s a simple matter of being able to sell your project to the financial managers, and financial analysis is a big part of their big picture.

Identify non-energy benefits: The effort to make your facility more energy efficient will almost always pay off in several non-energy areas. Incidental benefits from energy efficiency measures can be quantified, and this often can make the difference when a decision is borderline. Daylighting, for instance, reduces lighting energy requirements, but many studies have also shown significant productivity gains at facilities in which it has been implemented. Other incidental benefits such as improved product quality, brand equity, reliability and safety can far outweigh the direct energy saving benefits.

Explore utility incentive programs: Many regional utilities offer a number of programs for implementing energy efficiency. These programs range from direct rebates and other financial incentives to direct technical assistance with evaluation and analysis of proposed retrofits, upgrades and new system designs. Utilities also can offer technical assistance with free publications, guidelines and other information resources. We’ve recently published a set of best practices design guidelines in collaboration with Lawrence Berkeley National Laboratories, Pacific Gas and Electric Company and a consortium of California utility companies (see http://energydesignresources.com/ for more information).

Embrace third-party validation: Third-party validation of your design concepts, energy analysis and proposed projects is often overlooked as a tool for getting projects approved. Third parties have the benefit of objectivity, and even if they come to similar conclusions as an internal group, often carry more weight by virtue of being “outside the box.” Third-party companies, such as energy service companies (ESCOs) also can provide innovative financing programs for certain projects and assume the risk of construction and operation in exchange for the opportunity to sell energy back to the utility at a profit.

Efficiency and competitive advantageThe pressure to perform more efficiently is increasing, in part because your competitors, local and global, are adapting the advantages available through information technology and using energy efficient designs. Having these efficiencies, by themselves, doesn’t confer unique competitive advantage. They’re available to all competitors. This fact makes it that much more important to implement HVAC improvements sooner, rather than later, so your company can devote more time to strengthening your true competitive advantages and competencies.

Learning to assess and communicate the long-term benefits of energy-efficient HVAC projects will help you to get your projects sold. You’ll possibly gain some best practices learning that can be shared with other facilities in your company.

Peter Rumsey, P.E., is the founder of and Principal in Charge at Rumsey Engineers in Oakland, Calif. Contact him at www.rumseyengineers.com and (510) 663-2070.